Jet Airways introduces 15-20% variable pay for top management to save costs

Plan covers 100 execs; fixed pay at 80-85%, rest based on staff performance, firm's profitability

Jet Airways is introducing a 15-20 per cent variable pay component for its top management, as it looks to save on the wage bill. 

The Mumbai-headquartered airline has a higher cost structure than other listed domestic airlines. It is undertaking a cost control exercise. The variable pay scheme will be applicable to around 100 senior executives; it is expected to result in annual savings of Rs 25-30 crore, says an airline source.

While the fixed salary component will be 80-85 per cent, the remainder will be linked to both employee performance and airline profitability. The senior executives will also not receive a salary increment this year.

A Jet Airways spokesperson said in line with 'global best practices', the airline was introducing a performance-driven compensation for its leadership team. 

“The airline firmly believes members of its management team and senior executives are stakeholders in the company’s functioning. To that end, the company has aligned its executive remuneration by introducing a variable pay plan, based on the company’s and the individual’s performance.”

Some of Jet's peers have a variable pay scheme. Vistara has had one for its manager-grade staff since inception. Air India had a productivity-linked incentive scheme from the mid-1990s but this was discontinued in 2012.

Jet has a staff strength of around 15,000 and had a wage bill of Rs 2,316 crore in the first nine months of FY17. Employee costs rose 26 per cent on a year-on-year basis for the period. The airline has around 2,000 pilots on its rolls, whose salaries account for nearly half the wage bill.

It clocked profit for seven consecutive quarters but earnings have come under pressure due to increasing costs. In the December quarter, consolidated profit fell 66 per cent to Rs 156 crore, year on year. Unit cost (that incurred for flying a seat per kilometre) is higher than at IndiGo and SpiceJet. One reason is the mixed fleet the airline operates. Jet flies both narrow body and wide body planes and a large international network.

“We are looking at various ways to control costs and improve efficiencies, like increasing the utilisation of the Boeing 737 aircraft,” said the airline source. While fuel is the largest cost component for Indian air carriers, there is little they can do on this.

The management's move to prune salaries is causing discomfort among the brass, one is told. Some point to the raising of engineers' pay a few months earlier. 

“There is a clear paradox when it comes to cost cutting,” says an executive.